Sam Fletcher
Senior Writer
HOUSTON, Oct. 26 -- Energy prices soared Oct. 25 with front-month crude futures leaping above $61/bbl in the New York market on reports of unexpectedly large declines in US inventories of crude and petroleum products.
US crude inventories plunged by 3.3 million bbl to 332.3 million bbl during the week ended Oct. 20, with US oil imports down by a whopping 936,000 b/d to 9.5 million b/d during that period (OGJ Online, Oct. 25, 2006). Crude imports were reduced primarily because the Louisiana Offshore Oil Port—the largest US oil importing facility—was closed for 3 days during that week. "Next week's storage [report] could rise following the reopening of the facility," said analysts in the Houston office of Raymond James & Associates Inc.
The US Energy Information Administration said US gasoline stocks fell by 2.8 million bbl to 207.4 million bbl while distillate fuel inventories declined by 1.4 million bbl to 144 million bbl. It was "the biggest weekly decline in petroleum inventories since the week that Hurricane Katrina made landfall [in Louisiana Aug. 29, 2005], flying in the face of expected increases for oil and gasoline," Raymond James analysts said.
For the second consecutive week, the market data posted by EIA were described as "the strongest of the year" by Paul Horsnell at Barclays Capital Inc., London. "The latest data [are] much stronger. The demand numbers are very strong, with implied gasoline demand passing above 9.5 million b/d. Both gasoline and distillate demand would look fairly strong year-over-year even if the base was not weakened by last year's hurricane effects," he said.
Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said crude prices essentially bottomed out earlier this month and will likely climb for the rest of this year. "We expect volatility to remain as we are still in the shoulder period where the winter demand is not fully set in and there is still strong disagreement in the market over the impact of the OPEC oil cuts."
Market prices for benchmark US light, sweet crudes "will next pass above $70/bbl long before they pass below $50/bbl. However, we suspect that it will not be a particularly linear journey, and it may yet take a while," Horsnell said.
Meanwhile, Iran and the UAE said they, too, will reduce production in compliance with an Oct. 20 vote by ministers of the Organization of Petroleum Exporting Countries to cut output by 1.2 million b/d to 26.3 million b/d, effective Nov. 1. Saudi Arabia immediately announced at that time it would cut production by 380,000 b/d. Iran subsequently said it will cut back by 176,000 b/d. Industry sources report UAE officials have notified customers of a 5% reduction.
However, many market analysts remain skeptical about further reductions by the other seven members, omitting war-damaged Iraq.
Energy prices
The December contract for benchmark US crude jumped by $2.05 to $61.40/bbl Oct. 25 on the New York Mercantile Exchange. The January contract gained $2 to $63.07/bbl. On the US spot market, WTI at Cushing, Okla., increased by $2 to $59.11/bbl. Unleaded gasoline for November delivery climbed by 5.43¢ to $1.59/gal on NYMEX. Heating oil for the same month was up 4.38¢ to $1.74/gal.
The November natural gas contract escalated by 60.2¢ to $7.69/MMbtu on NYMEX, the highest level for a front-month contract since Sept. 6, on forecasts of below-normal temperatures in the Northeast US for the next several days. The National Oceanic and Atmospheric Administration predicts winter weather this year will be 8% colder than last year.
On the US spot market, natural gas at Henry Hub, La., gained 25¢ to $7.34/MMbtu. EIA reported Oct. 26 the injection of 19 bcf of natural gas into US underground storage during the week ended Oct. 20. That was well below the consensus of Wall Street analysts and down from injections of 53 bcf the previous week and 77 bcf during the same period of 2005. US gas storage is now at a record 3.46 tcf, up 333 bcf from year-ago levels and 315 bcf above the 5-year average.
In London, the December IPE contract for North Sea Brent advanced by $2.19 to $62.05/bbl. The November gas oil contract gained $12.25 to $548.75/tonne.
Due to a holiday, the OPEC Secretariat in Vienna was closed Oct. 26, so there was no update available on OPEC's basket price.
Contact Sam Fletcher at [email protected].